Losing Focus in China

How well Chinese advertising giant Focus Media (Nasdaq: FMCN  ) fared in its latest quarter depends on where you draw the line. If you're a top-line buff, you're going to like how Focus Media's revenue surged 150% higher to $151.4 million during the third quarter. The pros were expecting revenue to come in at only $129.4 million.

If you're a bottom-line fan, you're not exactly elated. Margins contracted, with earnings climbing just 73% higher to $0.37 a share, or $0.43 a share before stock-based compensation and amortization expenses. It's on that adjusted basis that analysts were expecting a profit of $0.44 a share, and it's the first time that Focus Media has missed Wall Street's profit target since going public two years ago. (Check out the previous quarter here to relive the streak's glory days).

Sure, you're getting greedy if a 73% profit spurt isn't good enough, but expectations are baked into share prices. The shortcoming is partly justified, given recent acquisitions to strengthen the company's outdoor billboard and online advertising.

Margins were also hurt by healthier growth in its online advertising and in-store marketing businesses. Yes, Web-based advertising is currently a margin sandbag at Focus.

The company's bread and butter niche remains its digital display advertising business, fueled by a fleet of 95,398 LCD television monitors spewing ads and content in high-traffic commercial locations.

The company's ad reach also includes movie theater advertising -- like National CineMedia (Nasdaq: NCMI  ) closer to home -- as well as billboards, and an army of 163,455 poster frames.

Focus Media is a giant. Even in online advertising, an area that generated $42.5 million (or just 28% of total revenue), Focus Media isn't all that far from market leader Baidu.com (Nasdaq: BIDU  ) and the $66.3 million it recorded during the same three months.

With the Olympics around the corner, companies like travel agent Ctrip.com (Nasdaq: CTRP  ) , budget lodging provider Home Inns (Nasdaq: HMIN  ) , and advertising specialist Focus Media are obvious winners. Unfortunately, the market is currently lapping Focus Media's potential.

The company's guidance for the current quarter calls for $0.48 a share to $0.50 a share in adjusted earnings on $160 million to $170 million in revenue. Once again, the top line is well ahead of where the market is perched. However, analysts are already expecting adjusted net income to clock in at $0.49 a share.

In other words, they're on to you, Focus Media. It's time to pick up the pace and leave them behind. You know, just like the old days.


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